American Institute of Certified Planners (AICP) Practice Exam

Tax increment financing (TIF) is a method that uses bonds secured by anticipated increases in property taxes to fund improvements in a designated area. This financing mechanism works by capturing the future tax revenue generated from increased property values that arise from public investments in infrastructure, amenities, or redevelopment within that specific area.

When improvements are made, they may lead to a rise in property values, which in turn increases property tax revenues. These future tax gains are then used to repay the bonds issued for financing the initial improvements. TIF is particularly effective in revitalizing blighted or underdeveloped areas by leveraging public funding to stimulate private investment.

The other financing methods mentioned have distinct characteristics that separate them from TIF. Impact fees are charges assessed on new development to pay for the costs of providing public services. Special assessments involve fees levied on property owners who will directly benefit from specific public improvements. Revenue bonds are backed by the income generated from specific revenue sources rather than increases in property taxes. Each of these differs from the concept of capturing property tax increments for financing improvements, which is the essence of tax increment financing.